There's a shrink-wrapped cardboard package that contains Windows 98. It's the size of a cereal box, and at least as colorful.
Today, I'd be intensely annoyed if I had to wait for and pay for a large box to ship - I'd much prefer an instant download, but the box was much more tangible than an email with a download link and license key.
Was this not the reason software was distributed in CDs? I can understand MSFT/Apple using that packaging for customer experience.
The problem was that you couldn't convince consumers to pay for software downloaded over a modem. (The infrastructure wasn't in place anyway - nobody was going to send their credit card number unencrypted to a random BBS sysop, and encryption was outlawed as a munition.) Many software firms in fact had huge problems with piracy over modem, and would build copy-protection into their software so you needed the original physical disk to run the software.
The idea that you could pay for a license key that unlocks software you download over the Internet only happened in the early 2000s, driven by combination of remaining restrictions on encryption being dropped, easy-to-integrate payment solutions for webpages coming to market, and widespread broadband adoption meaning that most consumers could easily download a big file.
You didn't have this for business software, but you did need something to keep the disks in. I think the largest such thing I saw was 100+ floppy disks; here's Raymond Chen on floppy installs of Windows: https://blogs.msdn.microsoft.com/oldnewthing/20050819-10/?p=...